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Google Buying YouTube for $1.65 Billion

9 Oct, 2006 By: Jessica Wolf

Google announced Monday it will purchase trendy user-generated content site Youtube.com for $1.65 billion in stock.

YouTube will continue to operate under the same name and programming scheme, and will "strengthen and complement" Google's growing video service, according to Google.

The combined companies will focus on providing a better, more comprehensive experience for users interested in uploading, watching and sharing videos, and will offer new opportunities for professional content owners to distribute their work to reach a vast new audience, according to Google.

“Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience," said Google CEO Eric Schmidt. "Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers.”

YouTube will benefit from the global reach and technology resources of Google, which was among the first Internet concerns to launch a video search function and dedicated video site.

“With this partnership we'll have the flexibility and resources needed to pursue our goal of building the next-generation platform for serving media worldwide,” said Chad Hurley, CEO and Co-Founder of YouTube.

YouTube will continue to be based in San Bruno, Calif., and all YouTube employees will remain with the company.

The day after Google announced YouTube purchase plans, both sites also announced newly inked deals with Warner Music Group, Universal Music Group and Sony BMG (soon to be part of Universal Music Group) for music video content on the sites.

Google's existing content relationship with CBS now extends to YouTube as well.

The Google purchase of YouTube lends a wealth of resources and a sense of propriety to a phenomenon that has gone largely untamed to date, though content holders are getting hip to the many uses of YouTube and its competitors.

The power of YouTube to generate excitement for a movie product cannot be denied, said Joe Eibert, executive director of online marketing for Warner Bros Home Entertainment, speaking at the recent TV DVD 4: Future Channels conference in Los Angeles.

Sometimes, that fact puts content rights owners in a sticky position.

For example, shortly after V for Vendetta hit theaters, "quite a bit of the movie" could be found on YouTube, Eibert said.

But people were so excited, word of mouth was spreading so well via the variety of clips on the site, it would have been "counterproductive" for Warner to swoop in and pull them down, he said.

In a classic "if you can't beat them, join them" strategy, for some time, studios have been tapping into the fan frenzy Youtube can create.

LeeAnn Prescott, research director of Internet tracking company Hitwise, also speaking at the TV DVD conference, charted the rise of YouTube following the explosion of the now-famous karaoke-singing Chinese "Backstreet Boys." Then followed wealth of user-generated content that spawned from the “Saturday Night Live” skit "Lazy Sunday" and its massive popularity, though short-lived availability, on the site.

YouTube isn't the only user-generated content playground on the Internet, but it has quickly become the premiere one, she said.
BR>Visits to Youtube increased 83% in the wake of the "SNL" digital short, Prescott said. "Lazy Sunday" got 8 million views during its short free tenure on Youtube. The same video was posted on Google, but that site only got 500,000 SNL views from the "Lazy Sunday" short, she said. Youtube marked its virtual territory with great recommendation features and a pleasing user experience, which Google lacked, she said.

Compared to the four Web sites for the biggest TV networks, ABC, CBS, Fox and NBC, Youtube gets more than three times the number of visits than all four sites combined on a monthly basis, Prescott said.

Youtube gets twice the hits of Myspace.com, four times the hits for Google Video and eight times that of Yahoo Video, she said

Hitwise estimates the average YouTube viewer spends nearly 20 minutes on the site per visit, which is far longer than the average Web site, she said and twice as long as viewers spend on network Web sites.

As far as those other short-programming sites, there are plenty of players looking to take a piece of the YouTube juggernaut such as Revver.com, BitTorrent.com and vMix.com.

Executives from these three YouTube competitors spoke at the TV DVD Conference and said they're also looking to the studios for promotional partnerships and to amateur videographers for content.

"It's the wild wild west right now," said Terry Ash, cofounder of vMix.com. "There are something like 240 user-generated sites out there and 90% of them will be gone next year."

But it's not a fad, he said, especially with the increase of Web cams and broadband in U.S. households. "That 12-24 demographic will expand," he said.

Brian Tapitch, VP of business development for BitTorrent — which in May inked a deal with Warner Bros. to release the first legal downloads of movie content on a filesharing service — said he thinks the Internet video craze, especially on the user-generated side is "both a bubble and a viable long-term channel."

In fact, he thinks the sites that rise to the top will be ones that offer all kinds of user created and copyrighted videos alongside one another.

"If your strategy is simply selling video content, you are probably going to fail," he said. "If you offer only user-generated content with little or no filtering for piracy or porn — you're going to fail."

When AOL launched its public beta phase of AOL Video in August, the company included several portals for user-generated content alongside a huge selection of both pay-per-download and free copyrighted content on a selection of themed channels.

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